In the Ghostbusters movie, the popular refrain was, “Who you gonna call?” In the business world, when a company’s expectations are not met, the inquiry is often, “Who you gonna sue?”
Fortunately, for providers of professional services, the Massachusetts Appeals Court recently confirmed that there are limits on who can sue a professional. Even with these limits, professionals need to watch out for third-parties (i.e., parties with whom they are not in contract) that may seek to rely on, and attempt to sue based on, the professional’s services. This is important for consultants, engineers, architects, contractors, brokers, accountants, planners, and other professional service providers.
Facts of the Case
The Appeals Court case is called, “Meridian at Windchime, Inc. v. Earth Tech, Inc.” A real estate developer attempted to sue a professional engineering firm that had been hired by a town as a consultant to inspect the developer’s road and utility work. Importantly, the engineer’s contract was with the town, not the developer.
The developer alleged that the engineer’s inspections were negligent because they failed to identify deficiencies with the infrastructure work performed by the developer’s construction contractor. When the deficiencies were discovered later on, the developer was required to replace the road at far greater cost than if the deficiencies were discovered earlier.
When the road contractor went out of business, the developer was faced with the question, “Who you gonna sue?” It chose the engineer, even though it did not have a contract with the engineer.
What the Appeals Court Said
The Appeals Court held that the developer was not allowed to sue the engineer because there was no direct contract between the developer and the engineer (i.e., no “breach of contract” claim), and there are limits to the liability of a professional to a third-party for negligent performance of a contract.
Under the principle of “reasonable reliance”, a professional employed to provide a service does not owe a duty of care to a third-party with whom the professional has no contractual relationship unless (i) it was “foreseeable and reasonable” for the third-party to rely on the services provided by the professional to its client, and (ii) the professional had “actual knowledge” that the third-party was relying on the professional’s services.
The Court held that there was no “reasonable reliance” because the developer had hired its own project engineer to provide services on the project, the underlying contract between the town and the engineer provided that the engineer would have no responsibility for the construction methods selected by the developer, and the engineer had informed the developer of the engineer’s limited role in the project.
Things For the Professional to Consider
• When entering into a contract for professional services, the professional should consider whether the work product might be obtained and relied upon by a third-party who is not the intended client. For instance, this scenario can arise if the professional is engaged to make submittals to local or state agencies (which could then make the document accessible to the public, members of which might claim “reliance” on the submittal). Another scenario is when a professional submits work product to a client or lender, who then shares it with a buyer, borrower, customer or other “user”.
• Consider adding provisions in the contract as well as statements in the work product to clearly announce that the services and work product are only for the client’s use, the document may not be used or relied upon by any third-party, and there are no intended third-party beneficiaries of the contract. Such a statement should be considered for each submission prepared by the professional even if the submissions are numerous or frequent (e.g., periodic inspection or status reports).
• If there is reason to believe that a third-party might seek to rely on the services or work product that the professional is providing to its client, the professional should consider informing the third-party that it can not and should not rely on the professional’s services without prior express approval.
• In contrast, if you are in the role of the “third-party” and want the legal right to rely on the work product of a professional with whom you are not in contract, you can attempt to obtain a statement from the professional, sometimes in the form of a “reliance letter”, confirming that you are authorized to rely on the work product just as the original client was able to rely on it.
Although these measures do not assure immunity from claims by third-parties, they might provide some level of protection against them.
Please contact me if you or a colleague has a question on contracts, performance, or real estate issues.
Monday, February 27, 2012
Thursday, January 12, 2012
Is your property contaminated? How about your indoor air? (MassDEP's Guidance on Vapor Intrusion and Indoor Air)
Just in time for the recent Holiday season, the Massachusetts Department of Environmental Protection provided the real estate and environmental communities with a dubious present, the 102-page (plus five appendices) “Interim Final Vapor Intrusion Guidance” document on the scintillating (to some) topic of indoor air contamination caused by groundwater and soil contamination. The Guidance document will be important for building and landowners, developers, lenders, tenants and environmental consultants, particularly Licensed Site Professionals (LSP’s), with the misfortune of encountering (potential) indoor air contamination.
The DEP estimates that approximately 50 new sites are identified each year with the potential for vapor intrusion (i.e., the way contamination in soil and groundwater can enter a building and contaminate the indoor air). In addition, vapor intrusion concerns have been raised at former contaminated sites that were previously cleaned up and believed to be “closed” under the hazardous waste cleanup regulations. Additional expensive and time-consuming hazardous waste response actions have been required at some former sites based upon assertions that the prior cleanup did not properly evaluate the potential for vapor intrusion or for new building construction. As imagined, this uncertainty has been a serious concern for lenders, owners, developers and LSPs.
A title combining the words “Interim”, “Final”, and “Guidance” raises some questions as to the document’s legal and practical effect. According to DEP, the document is “final” insofar as it can be quoted and cited after a prior draft had previously been circulated. It is “interim” insofar as DEP says that it will issue formal revisions to its regulations by July 2012, which may supersede parts of the document and lead to additional revisions. Finally, according to DEP, the “Guidance” is not a regulation, rule or requirement, and should not be construed as mandatory. However, because the Guidance presents the technical recommendations and preferences of DEP, an owner, developer or LSP could be forgiven if they treated the document as a requirement subject to enforcement by DEP.
The Guidance outlines DEP’s recommendations for best practices that will meet the current regulatory requirements. The stated purposes are to clarify when to evaluate the pathway for vapor intrusion; provide guidance on conducting assessments to determine if the vapor intrusion pathway (i.e., migration route from the containment source to the sensitive receptor) is complete and conducting risk assessments if the pathway is complete; and, recommend mitigation strategies to address vapor intrusion.
In terms of evaluating the potential for vapor intrusion at sites where there is soil or groundwater contamination, the Guidance contains a multi-step flow chart including documentation of indoor air contamination or odors, the concentrations of contaminants within certain distances of an occupied building, specific building criteria (e.g., an earthen floor, significant cracks in the foundation, a groundwater sump, etc.), and the potential for contaminants moving along preferential migration pathways such as utility trenches.
The DEP recommends a multiple “Lines of Evidence” approach to determine if the vapor intrusion pathway from source to receptor is complete and likely to be of concern. The Lines of Evidence may include the concentration of contaminants in the soil, groundwater, soil gas below the building (sub-slab soil gas), and indoor air; the presence of preferential migration pathways for vapors; and, the presence of other outdoor and indoor sources for the contaminants (e.g., outdoor sources of pollution, household products, etc.).
In an effort to “simplify” the evaluation of the vapor intrusion pathway, DEP has developed Residential and Commercial/Industrial Threshold Values (TVs). These Threshold Values are used to determine whether measured indoor air concentrations are within the range of typical residential indoor air concentrations and typical exposure scenarios for commercial and industrial settings.
The Guidance addresses the common question of whether, and when, to conduct direct sampling of indoor air. The Guidance indicates that it is not common to sample indoor air for volatile organic compounds (VOCs) without first collecting other data on groundwater, soil, or soil gas that indicates that there might be an indoor air problem due to environmental contamination, at least for the purpose of satisfying hazardous waste cleanup regulations (i.e., there may be other reasons to sample the indoor air unrelated to the Massachusetts Contingency Plan, or MCP, at 310 CMR 40.0000). The Guidance recognizes that direct sampling of indoor air without gathering other site data can result in erroneous conclusions and unnecessary response actions to address conditions that are not related to the MCP. In addition, when sampling indoor air (if it is appropriate), efforts should be made to eliminate sources of contamination within or near the building that can affect the results, such as cigarette smoke, the use of sprays, solvents, paints, and other household products, and operations of nearby businesses, such as a dry cleaner.
The Guidance discusses the contentious issue of potential future building construction when there is a potential risk of vapor intrusion (if a building were to be constructed). Achieving closure of a vacant contaminated site that does not have a building can be difficult because actual building conditions cannot be directly measured and existing methodology may not explicitly address potential indoor air problems at a future building. The Guidance indicates that, if some amount of residual contamination will remain in the soil or groundwater, the potential for vapor intrusion should be considered in planning the future placement of a new building and preparing the building site.
The Guidance states DEP’s preference of using an Activity and Use Limitation (AUL), which is a deed rider recorded at the Registry of Deeds, to provide notice to interested parties of the contamination that remains and how to address it in the future. For instance, an AUL might specify the measures to be taken at the time of future building construction (e.g., installation of sub-slab depressurization (SSD) system and a vapor barrier) or might restrict construction activity to locations outside of areas with contamination, or specify that an LSP must evaluate the potential for vapor intrusion before a building is constructed.
The Guidance provides that engineering measures may be incorporated into the future construction plans to protect against vapor intrusion if a building will be constructed in an area where contamination remains that could lead to vapor intrusion. Depending on the concentration of the contaminants, a vapor barrier and an active SSD system either is not required (Category A site), or “should” be installed (Category B site), or presumably “would” be installed (Category C site). The Guidance provides criteria on whether post-construction confirmatory indoor air sampling is necessary and the procedure to determine if the SSD system can be terminated.
Among the various takeaways for owners, developers, and lenders is that LSPs and environmental professionals will have good reason to be cautious in addressing contaminated sites with the potential for vapor intrusion and indoor air contamination. This includes sites with existing buildings as well as vacant properties on which building and construction activities may occur in the future. The Guidance will likely lead to additional site investigations and sampling, which would likely be reflected in the cost and schedule of the work.
Please contact me if you or a colleague has a question on DEP’s Guidance or on other real estate or environmental issues.
The DEP estimates that approximately 50 new sites are identified each year with the potential for vapor intrusion (i.e., the way contamination in soil and groundwater can enter a building and contaminate the indoor air). In addition, vapor intrusion concerns have been raised at former contaminated sites that were previously cleaned up and believed to be “closed” under the hazardous waste cleanup regulations. Additional expensive and time-consuming hazardous waste response actions have been required at some former sites based upon assertions that the prior cleanup did not properly evaluate the potential for vapor intrusion or for new building construction. As imagined, this uncertainty has been a serious concern for lenders, owners, developers and LSPs.
A title combining the words “Interim”, “Final”, and “Guidance” raises some questions as to the document’s legal and practical effect. According to DEP, the document is “final” insofar as it can be quoted and cited after a prior draft had previously been circulated. It is “interim” insofar as DEP says that it will issue formal revisions to its regulations by July 2012, which may supersede parts of the document and lead to additional revisions. Finally, according to DEP, the “Guidance” is not a regulation, rule or requirement, and should not be construed as mandatory. However, because the Guidance presents the technical recommendations and preferences of DEP, an owner, developer or LSP could be forgiven if they treated the document as a requirement subject to enforcement by DEP.
The Guidance outlines DEP’s recommendations for best practices that will meet the current regulatory requirements. The stated purposes are to clarify when to evaluate the pathway for vapor intrusion; provide guidance on conducting assessments to determine if the vapor intrusion pathway (i.e., migration route from the containment source to the sensitive receptor) is complete and conducting risk assessments if the pathway is complete; and, recommend mitigation strategies to address vapor intrusion.
In terms of evaluating the potential for vapor intrusion at sites where there is soil or groundwater contamination, the Guidance contains a multi-step flow chart including documentation of indoor air contamination or odors, the concentrations of contaminants within certain distances of an occupied building, specific building criteria (e.g., an earthen floor, significant cracks in the foundation, a groundwater sump, etc.), and the potential for contaminants moving along preferential migration pathways such as utility trenches.
The DEP recommends a multiple “Lines of Evidence” approach to determine if the vapor intrusion pathway from source to receptor is complete and likely to be of concern. The Lines of Evidence may include the concentration of contaminants in the soil, groundwater, soil gas below the building (sub-slab soil gas), and indoor air; the presence of preferential migration pathways for vapors; and, the presence of other outdoor and indoor sources for the contaminants (e.g., outdoor sources of pollution, household products, etc.).
In an effort to “simplify” the evaluation of the vapor intrusion pathway, DEP has developed Residential and Commercial/Industrial Threshold Values (TVs). These Threshold Values are used to determine whether measured indoor air concentrations are within the range of typical residential indoor air concentrations and typical exposure scenarios for commercial and industrial settings.
The Guidance addresses the common question of whether, and when, to conduct direct sampling of indoor air. The Guidance indicates that it is not common to sample indoor air for volatile organic compounds (VOCs) without first collecting other data on groundwater, soil, or soil gas that indicates that there might be an indoor air problem due to environmental contamination, at least for the purpose of satisfying hazardous waste cleanup regulations (i.e., there may be other reasons to sample the indoor air unrelated to the Massachusetts Contingency Plan, or MCP, at 310 CMR 40.0000). The Guidance recognizes that direct sampling of indoor air without gathering other site data can result in erroneous conclusions and unnecessary response actions to address conditions that are not related to the MCP. In addition, when sampling indoor air (if it is appropriate), efforts should be made to eliminate sources of contamination within or near the building that can affect the results, such as cigarette smoke, the use of sprays, solvents, paints, and other household products, and operations of nearby businesses, such as a dry cleaner.
The Guidance discusses the contentious issue of potential future building construction when there is a potential risk of vapor intrusion (if a building were to be constructed). Achieving closure of a vacant contaminated site that does not have a building can be difficult because actual building conditions cannot be directly measured and existing methodology may not explicitly address potential indoor air problems at a future building. The Guidance indicates that, if some amount of residual contamination will remain in the soil or groundwater, the potential for vapor intrusion should be considered in planning the future placement of a new building and preparing the building site.
The Guidance states DEP’s preference of using an Activity and Use Limitation (AUL), which is a deed rider recorded at the Registry of Deeds, to provide notice to interested parties of the contamination that remains and how to address it in the future. For instance, an AUL might specify the measures to be taken at the time of future building construction (e.g., installation of sub-slab depressurization (SSD) system and a vapor barrier) or might restrict construction activity to locations outside of areas with contamination, or specify that an LSP must evaluate the potential for vapor intrusion before a building is constructed.
The Guidance provides that engineering measures may be incorporated into the future construction plans to protect against vapor intrusion if a building will be constructed in an area where contamination remains that could lead to vapor intrusion. Depending on the concentration of the contaminants, a vapor barrier and an active SSD system either is not required (Category A site), or “should” be installed (Category B site), or presumably “would” be installed (Category C site). The Guidance provides criteria on whether post-construction confirmatory indoor air sampling is necessary and the procedure to determine if the SSD system can be terminated.
Among the various takeaways for owners, developers, and lenders is that LSPs and environmental professionals will have good reason to be cautious in addressing contaminated sites with the potential for vapor intrusion and indoor air contamination. This includes sites with existing buildings as well as vacant properties on which building and construction activities may occur in the future. The Guidance will likely lead to additional site investigations and sampling, which would likely be reflected in the cost and schedule of the work.
Please contact me if you or a colleague has a question on DEP’s Guidance or on other real estate or environmental issues.
Monday, September 12, 2011
Subcontractor's Mechanic's Lien Fails Due to Late Filing and Breach by General Contractor
I recently posted on recent changes to the Mechanic’s Lien Law that allow “design professionals” to create and enforce liens. Following up on the mechanic’s lien topic, on August 29, 2011, the Appeals Court ruled that a lien filed by a subcontractor was not allowed because prior nonperformance by the general contractor had released the project owner from any duty to make further payments under the original contract. The important point under the Mechanic’s Lien Law, G.L. c.254, §4, is that a payment “due or to become due” from the owner to the general contractor must exist at the time the subcontractor files its notice of contract.
The particular case (Maverick Construction Management Services, Inc. v. Fidelity & Deposit Company of Maryland, Inc.) concerned the reconstruction of an athletic field complex at Nichols College by the general contractor, Evergrass, Inc. Evergrass had subcontracted with Maverick Construction Services, Inc., to excavate the site, place subsurface materials and install a drainage system. Evergrass delivered the facility to the College in September 2005, just in time for the football season. However, serious drainage problems quickly developed that Fall. The cost of the repairs were later determined to far exceed the outstanding balance due under the general contract. Although the College never formally issued a notice of termination to Evergrass, the College broke off negotiations with Evergrass and subsequently hired a new general contractor to remove the deficient field and install a new one.
During the course of the unsuccessful negotiations between the College and Evergrass, Maverick filed its “notice of contract” under the Mechanic’s Lien Law to assert its unpaid subcontract balance. Maverick subsequently sued Evergrass for the unpaid subcontract balance and sued the College for enforcement of its lien.
The Superior Court’s rejected Maverick’s lien because no payment was “due or to become due” to Evergrass under the original contract at the time Maverick filed its notice of contract, which the Appeals Court affirmed. No amounts were due to Evergrass at the time the project was delivered to the College because, at that time, Evergrass’ breach of contract required remedial expenditures that far exceeded the general contract’s retainage balance. Because Maverick’s subcontractor lien was asserted after the project was delivered, when no amounts were “due or to become due” under the contract, Maverick’s subcontractor lien failed.
This case is another reminder to owners, contractors and subcontractors that the Mechanic’s Lien Law, G.L. c.254, contains numerous, detailed requirements that must be followed strictly in order to create and enforce a lien. Additionally, for subcontractors, it is important to understand the status of the general contractor’s contract with the owner in order to evaluate the viability of a possible lien.
Please contact me if you or a colleague has a question regarding creation or enforcement of a mechanic’s lien.
The particular case (Maverick Construction Management Services, Inc. v. Fidelity & Deposit Company of Maryland, Inc.) concerned the reconstruction of an athletic field complex at Nichols College by the general contractor, Evergrass, Inc. Evergrass had subcontracted with Maverick Construction Services, Inc., to excavate the site, place subsurface materials and install a drainage system. Evergrass delivered the facility to the College in September 2005, just in time for the football season. However, serious drainage problems quickly developed that Fall. The cost of the repairs were later determined to far exceed the outstanding balance due under the general contract. Although the College never formally issued a notice of termination to Evergrass, the College broke off negotiations with Evergrass and subsequently hired a new general contractor to remove the deficient field and install a new one.
During the course of the unsuccessful negotiations between the College and Evergrass, Maverick filed its “notice of contract” under the Mechanic’s Lien Law to assert its unpaid subcontract balance. Maverick subsequently sued Evergrass for the unpaid subcontract balance and sued the College for enforcement of its lien.
The Superior Court’s rejected Maverick’s lien because no payment was “due or to become due” to Evergrass under the original contract at the time Maverick filed its notice of contract, which the Appeals Court affirmed. No amounts were due to Evergrass at the time the project was delivered to the College because, at that time, Evergrass’ breach of contract required remedial expenditures that far exceeded the general contract’s retainage balance. Because Maverick’s subcontractor lien was asserted after the project was delivered, when no amounts were “due or to become due” under the contract, Maverick’s subcontractor lien failed.
This case is another reminder to owners, contractors and subcontractors that the Mechanic’s Lien Law, G.L. c.254, contains numerous, detailed requirements that must be followed strictly in order to create and enforce a lien. Additionally, for subcontractors, it is important to understand the status of the general contractor’s contract with the owner in order to evaluate the viability of a possible lien.
Please contact me if you or a colleague has a question regarding creation or enforcement of a mechanic’s lien.
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